This article discusses consumer proposals and the cost associated with a consumer proposal. A consumer proposal is an alternative to bankruptcy that requires a consumer or a family of consumers, with debt totalling more than $250,000, to repay some amount from their creditors over five years.
In Canada, consumer proposals have been available as an option to deal with consumer debt since October 2005. Before this option was available, Canadians generally had two opportunities when faced with consumer debt problems: file for consumer bankruptcy or face the consequences of not repaying consumer debts.
The main differences between consumer proposals and consumer bankruptcies are that consumer proposals offer flexible alternatives to repayment, cannot force consumers into stricter conditions than those originally agreed to, and they provide a solution to consumer debt problems instead of simply replacing consumer bankruptcy discharge from consumer debts.
The consumer proposal process involves the consumer making a proposal to their creditors to pay a portion of their consumer debt over five years. If a creditor votes in favour of the consumer proposal, it is accepted. If more than half of creditors vote in favour of the consumer proposal, all creditors are bound by the terms agreed upon in this agreement.
The consumer proposal process has its costs associated with it. For example, before creditors can even vote on a consumer proposal, the consumer or consumer family must pay a consumer proposal administration fee to the Licensed Insolvency Trustee (LIT). This is the person conducting the consumer proposal.
And then, there are the consumer protection fees to the Office of the Superintendent of Bankruptcy Canada (OSB). Once creditors vote in favour of accepting the consumer proposal, they must also pay a per capita distribution fee.
Also, if a consumer proposal is accepted by creditors as well as the consumer, they will be required to pay consumer proposal fees to the consumer’s LIT. These consumer proposal fees include an application fee and a consumer proposal administration fee, based on the consumer’s ability to pay (higher monthly payments may mean lower consumer proposal administration fees).
In Canada, consumer proposals have been available as an option to deal with debts since October 2005. The cost of a proposal is the total amount owed in debt minus what you pay back over five years. Consumer bankruptcy has its own costs and provides no guarantee that your credit rating will be restored or improved upon completion. If you find yourself struggling to repay your loans, contact our team today for more information on how we can help!
These are the chief costs associated with consumer proposals, but other minor costs could include the travel time to speak with your LIT or your own time gathering your documents. Still, these costs will be relatively minor in comparison to the larger fees described above.
Understanding this knowledge should help you grasp the costs associated with the process, but keep in mind that the best way to get an accurate and personalized cost estimate is to speak with an experienced LIT, as they will know exactly what charges apply to you.